Year to date, the global economy has navigated a delicate balance between short-term fragility and medium-term promise. As 2025 has progressed, and the so-called “Liberation Day” tariffs (along with subsequent announcements) have faded further into the rear-view mirror, the global economy continues to face an unusual contrast. On one hand, markets remain preoccupied with the risk of a near-term slowdown. On the other hand, medium-term prospects have steadily brightened, supported by easing trade tensions, fiscal policy momentum, and accommodative monetary conditions.

After years of trade tensions, tariff shocks, and shifting policy landscapes, many observers expected the recovery to falter. Yet, while near-term risks – such as U.S. labour market strains and weaker momentum in Europe and China – continue to cloud sentiment, the underlying trajectory has become more encouraging. Persistent uncertainty and the lingering impact of higher tariffs threaten to weigh on economic activity in the months ahead. Easing trade frictions, proactive fiscal measures, and supportive monetary policies are quietly reshaping the global growth outlook.

Tariffs and trade dynamics

While significant tariffs and trade barriers have been introduced, the disruptions to global commerce have proven less severe than initially feared. Importantly, the moderation in tariff intensity has reduced uncertainty across supply chains and investment planning. This easing of trade-related anxiety has supported confidence and improved the trajectory of future growth.

Fiscal policy tailwinds

At the same time, policy support is increasingly becoming a feature of the medium-term outlook. The United States has already enacted fiscal stimulus, while other major economies – including Canada, the European Union, and Japan – have either signalled or proposed measures to bolster demand. This wave of government spending is expected to provide additional support for global activity in 2026 and beyond.

Monetary easing effects

Monetary policy is also playing an important role. Central banks across advanced and emerging economies have shifted toward easing, with lower interest rates beginning to filter into broader economic conditions. As these effects accumulate, financing conditions should become more favourable for both businesses and households, reinforcing a gradual pickup in activity.

United States outlook

Even as the medium-term global picture improves, the United States stands out as the focal point for near-term growth concerns. After demonstrating resilience early in 2025, the U.S. labour market has softened considerably. Nonfarm payrolls rose by an average of 29,000 per month in the three months through August, while preliminary benchmark revisions suggest past employment gains will also be marked down.

Survey data for both services and manufacturing indicate slower momentum, and the housing market remains under strain. Retail sales figures in August and stronger consumer spending in July highlight areas of resilience, suggesting the economy is not teetering on recession. Nonetheless, the broader trend points toward a meaningful deceleration. Growth is forecast to average just above 1.4% on an annualised basis from Q3-2025 through Q1-2026.

With inflation pressures not accelerating meaningfully, markets increasingly expect the Federal Reserve to lean more heavily on rate cuts. Following September’s 25 basis-point reduction, a further 100 basis points of easing through mid-2026 are priced in.

Eurozone, U.K., and China outlook

The Eurozone economy has also experienced a clear loss of momentum. GDP expanded 0.1% quarter-over-quarter in the second quarter of 2025, which is a sharp slowdown from earlier in the year. Consumer spending showed modest growth, but weak employment gains and slowing income growth present ongoing headwinds.

Purchasing Managers’ Index (PMI) data in September were mixed: while services activity climbed to its highest level since December, manufacturing weakened further. The composite index suggests only modest growth, reinforcing expectations for a subdued pace of expansion through late 2025 and into early 2026.

The U.K. economy followed a similar trajectory, though the slowdown in the second quarter was less severe. Still, both manufacturing and services PMIs softened in September, pointing to mounting challenges. With fiscal tightening expected in the Autumn budget update and inflation still eroding household purchasing power, growth prospects remain fragile, and a slowdown appears likely in the quarters ahead.

China, by contrast, posted relatively resilient growth in the first half of 2025, aided by a front-loading of exports ahead of tariff increases and a consumer appliance trade-in program that boosted spending. Momentum has, however, faded. July and August activity data showed retail sales and industrial output slowing more than expected, suggesting the economy is heading into a weaker second half. This deceleration underscores the challenges China faces in sustaining growth amid a shifting global trade landscape.

South Africa Outlook

In South Africa, the outlook remains shaped by the interplay between long-term reform momentum and near-term headwinds. Structural reforms aimed at easing the country’s binding growth constraints continue to advance, underpinning credible expectations for higher trend growth over time. However, progress has been slower than hoped, as new risks emerged through 2025.

The abrupt U.S. policy shifts and steep tariff hikes weighed heavily on global trade, compounding pressures on domestic growth. Domestically, the unprecedented difficulty in passing a national Budget unsettled markets and heightened concerns about the durability of the government of national unity (GNU).

Simultaneously, important positive developments are taking root. Significant progress has been made in alleviating structural bottlenecks that had long constrained the economy. Loadshedding has been virtually eliminated this year, while rail freight volumes in the second quarter of 2025 were 9% higher than in the first quarter of 2023. Port congestion has eased drastically, with vessel delays now only around a third of late 2023 levels.

Operation Vulindlela, the joint initiative between the Presidency and National Treasury, has driven reforms ranging from easing visa rules, supporting tourism and skilled immigration, creating an online and transparent mining license application system and auctioning spectrum for digital services. Infrastructure spending is also being ramped up, with a notable acceleration in projects approved under the Budget Facility for Infrastructure (BFI).

Consumer spending has also emerged as a source of resilience. Supported by low inflation, lower interest rates, renewed access to “two-pot” retirement savings, and strong growth in the government’s wage bill, household consumption has remained robust. This resilience has persisted despite a higher tax burden (due to fiscal drag), which is equivalent to roughly 0.5% of total household consumption expenditure.

Credit growth is also bolstering household demand, aided by improving credit health among consumers, even as financial pressures remain uneven across income groups. Additionally, the stock market rally may be generating some positive wealth effects, further supporting consumption.

Together, these reforms and spending dynamics provide a foundation for stronger growth in the medium term. While political uncertainty and global headwinds temper the near-term picture, the combination of structural reform progress and resilient consumption suggests that South Africa’s longer-term growth trajectory is gradually improving.

Revised forecasts

Taken together, these factors have led to a modestly more optimistic global outlook. After expanding 3.3% in 2024, the world economy is now projected to grow 2.9% in 2025. This is slightly stronger than the 2.8% anticipated just a month ago. For 2026, growth is expected to ease further to 2.7%, but that pace represents a gentler deceleration than previously forecast (2.5%). Looking further ahead, global GDP growth is now projected to re-accelerate modestly to 2.9% in 2027, underscoring an improving medium-term path.

In conclusion

While uncertainty remains a defining feature of the current landscape, the balance of risks has shifted. Less disruptive trade outcomes, rising fiscal support, and the lagged benefits of monetary easing are working in tandem to strengthen the global growth outlook. The near term may continue to feel the weight of trade frictions and economic caution, but beyond 2025, the stage appears set for a steadier and more constructive expansion.